Does navigating the insurance world cause confusion and stress for you? If so, you’re not alone. Insurance terms can be complex, and policies are often filled with unfamiliar words. Although unpleasant, it’s important to understand the basics to make sure your family is fully protected. In this blog post, we’ll explain some common insurance terms so that you can make better-informed decisions about your coverage.
From health to auto policies and everything in between, there is insurance for almost everything these days, which means a lot of policies have overlapping terms. Here are general insurance terms to be familiar with before signing any paperwork.
Actual Cash Value (ACV): The predetermined amount of money that is paid out for an insured claim. The ACV will consider the current market value of the item that was damaged or destroyed after depreciation, so it’s often less than what it would cost to replace the item with a new one.
Adjuster: A professional who checks the facts surrounding an insurance claim to decide how much should be paid out.
Agent: A representative of an insurance company that sells policies to customers. Agents
Beneficiary: An individual or entity that will receive an insurance policy’s death benefit in the event the insured person passes. Often, a policy will list a primary and contingent beneficiary. The contingent will receive the payout if the primary beneficiary can’t be found.
Binder: A document that temporarily verifies coverage for an insurance policy. This document is issued until the insurer can review and confirm the information provided by you or your agent/broker. It usually includes details such as the policy period, premium amount, amount of coverage, etc.
Broker: An independent middleman between the insured and the insurer. Much like an insurance agent, these professionals can help secure coverage, explain complex policy information, negotiate a lower premium, and provide unbiased advice to the insured. Unlike an agent, brokers aren’t employed by an insurance company and have access to various insurers, so they can help you find the best coverage at the most competitive rate.
Claim: A formal request for a payout from an insurer made by someone eligible for coverage under the terms of the policy.
Claimant: Someone who makes a claim on an insurance policy and seeks compensation for a loss or injury. The claimant must provide evidence of the loss or injury to receive payment from the insurance company. In some cases, the claimant can also represent the policyholder claiming on their behalf.
Coverage: The protection provided by an insurance policy against specified losses, accidents or liabilities.
Coverage Limit: The maximum amount of money an insurance policy will cover for a claim. Anything above this limit would not be covered by the policy.
Covered Loss: Losses that an insurance policy covers. This can include damages or theft of property, bodily injury, or other related costs depending on the type of policy. It is important to understand what is covered and what isn’t before signing a policy in order to have proper coverage.
Declarations Page: Outlines all of the details of the policy, including information about what is covered, deductibles and limits, and premium amounts. The declarations page also serves as a legal document that both the insurer and policyholder can use to settle disputes or claims.
Deductible: The amount of money an insured person must pay before the insurer will payout on a claim.
Endorsement: An amendment or addition to an existing policy that adds or eliminates coverage.
Exclusions: Certain events and circumstances that are excluded from being covered under an insurance policy. These events must be clearly outlined for the insurer to deny a claim.
Face Amount: The sum of money that an insurance policy pays out when it is triggered. This is known as the death benefit or the benefit amount, and it may vary depending on the type of policy. The face amount can be changed by adding or removing riders and endorsements to the policy.
Incontestable Clause: A provision in an insurance policy that states that once the policy has been in force for a certain length of time, typically two to three years, the insurer cannot contest any information contained in the policy and cannot refuse payment on a valid claim. The incontestable clause also applies to changes made to the policy as long as they are within the terms of the original policy.
Indemnity: Refers to financial protection or compensation provided by an insurance policy. It provides coverage for damages, losses, and liabilities suffered by the insured person or organization should they be found liable for an event that is covered in the policy. Indemnity can also refer to a sum of money paid as restitution or recompense for a wrong.
Insurable Interest: Legal right or financial interest that would justify entering into a contract with an insurer to protect it.
Named Insured: The individual or business entity that is covered under an insurance policy. This could be the owner or tenant of a property, an employee, a company, or any other person or organization listed on the policy. The named insured is responsible for paying premiums and meeting any obligations outlined in the policy.
Out-of-pocket maximum: A limit on how much you can pay out of pocket during a policy period, beyond which your plan will pick up 100% of the cost.
Peril: A type of risk that can cause harm, damage or loss to personal property or life as part of an insurance policy. Perils are typically covered in an insurance policy and can include natural disasters, accidents, and theft. Each insurance company decides on which perils it will cover.
Policy Limit: The maximum dollar amount that an insurer will cover for a particular policy.
Premium: The amount of money charged by an insurer for providing coverage. Premiums are often paid either all at once at the beginning of the policy or monthly.
Premium Financing: A practice in which an insurance policyholder pays for their premium over time instead of in one lump sum. Other costs associated with the policy, such as taxes and fees, may also be included in the financing agreement.
Pro-Rata Cancellation: A type of insurance policy cancellation that refunds the remaining premium to the insured. Under pro-rata cancellation, the premium amount to be refunded is proportionate to the unexpired period of coverage under the policy. It is generally used when an insured cancels their policy before it expires, and there is still time left for which they have paid a premium.
Quote: A preliminary estimate of the cost of an insurance policy. Quotes are typically based on the information provided by the insured, including their age, location, and any other relevant factors. It can take into account past difficulties or claims made against them to determine what kind of coverage they should get and how much it will cost them.
Reinstatement: The process of restoring an insurance policy that had lapsed or been canceled. It typically involves the insured paying outstanding balances and any additional premiums that may have accrued since the policy was last active, allowing them to regain coverage under the terms of their original policy. Reinstatement can be done with some policies for a period of time after it has lapsed, depending on the insurer’s rules.
Replacement Cost: The amount paid to replace your belongings without deducting for appreciation.
Risk: The likelihood of suffering a financial loss.
Short-Rate Cancellation: The process of canceling an insurance policy before the term of the policy has expired. With a short rate cancellation, there is usually a penalty in the form of a pro-rated refund or higher premiums if the policyholder chooses to reinstate their coverage with the same insurer. The penalty charged for a short-rate cancellation varies by insurer and can be based on factors such as how much time remains on the policy and any applicable fees or penalties.
Subrogation: A legal principle that allows an insurance company to assume the rights of the insured person and pursue legal action against an at-fault party in order to recover damages paid out on the claim. In other words, an insurance company’s ability to sue for reimbursement after paying for losses suffered by the insured person or organization to minimize their financial losses.
Surcharge: An additional fee that increases an insurance policy premium. Surcharges are usually applied when a person’s risk profile changes, such as when they have had an accident or violation or if the insurer has changed their rates. Surcharges may also be applied if the insured has had multiple claims or if the insurer believes the insured is no longer a good fit for their coverage.
Underwriter: A professional responsible for assessing risk and determining if a person or company is eligible for insurance coverage and at what rate they should be charged.
The last thing you want when you need medical care is to worry about the medical expenses tied to it. Here are a few health insurance-specific terms to familiarize yourself with before you decide on a plan for you and your family.
Coinsurance: The percentage of a claim you are expected to pay after meeting your deductible.
Copayment (or Copay): A small fixed amount that you are required to pay for a medical service, such as a doctor’s visit.
Maximum Out-of-Pocket Limit: The total amount you can be expected to pay in a policy period, including copayments and deductibles. After this limit is met, your insurer will cover 100% of covered services.
In-Network Services: Services provided by your healthcare provider or facility that has an agreement with your health insurance company.
Out-of-Network Services: Medical services that are not covered by your insurance company due to a lack of an agreement with the service provider.
Keep reading for a few terms and their definitions related to auto insurance policies.
Collision Coverage: This type of coverage pays for damages to your vehicle caused by a collision with another vehicle or object.
Comprehensive Coverage: This type of coverage protects your vehicle from damages caused by incidents other than collisions, such as theft, vandalism, hail, or chipped windshields.
Collision Deductible Waiver (CDW): An optional coverage that a policyholder can purchase as part of their auto insurance policy. With this type of waiver, the insured may be able to avoid any out-of-pocket expenses if they are involved in a collision and it is determined to be their fault. The CDW will cover the deductible, allowing the insured to save money on repair costs.
Liability Coverage: This type of coverage provides protection in case you are found legally responsible for an accident that causes damage to another person or property. It will typically cover medical bills and property repairs.
Uninsured/Underinsured Motorist Coverage: This type of insurance covers your expenses if the at-fault driver does not have enough (or any) insurance to cover your costs.
While you might not be required to have homeowner’s insurance by law, it can give you a lot of peace of mind. From theft or vandalism to unexpected property damage from a windstorm or other natural disaster, make sure you know what is and isn’t covered with your homeowners insurance policy.
Dwelling Coverage: This type of coverage protects the physical structure of your home, such as walls, ceilings, floors, and permanent fixtures like plumbing.
Personal Property Coverage: This type of coverage protects your personal possessions from damage or theft.
Liability Coverage: Liability coverage provides protection in case you are found legally responsible for an accident on your property that causes damage to another person or property. It will typically cover medical bills, legal fees, and property repairs.
The topic no one likes to think about… life insurance. Life insurance protection can ensure your family is taken care of once you are gone. Check out a few specific life insurance policy terms below.
Term Life Insurance: This type of life insurance coverage provides a death benefit for a specified period of time.
Whole Life Insurance: This type of life insurance offers permanent coverage with a guaranteed death benefit and also builds cash value over time.
Universal Life Insurance: This type of life insurance combines protection with the ability to save money on a tax-deferred basis. It can also provide flexible policy features that allow the policyholder to adjust premiums and death benefits as needed.
Death Benefit: The amount payable by an insurance company to designated beneficiaries upon the death of the insured person.
Guaranteed Insurability: Guaranteed insurability is a clause that allows for the owner of an insurance policy to make changes to the face amount without providing any additional evidence of health or financial status. This ensures that policyholders can increase their coverage amount without having to undergo medical or financial underwriting again. In some cases, the insurer may impose certain limits on the increases and require evidence of an increased need for coverage.
Disability insurance is another not-so-fun topic, but understanding which medical payments and medical treatments are covered, how long coverage lasts and when the effective date start and end is crucial.
Short-Term Disability Insurance: This type of disability insurance provides a portion of an individual’s income for a short period of time if they become unable to work due to an illness or injury. Short-term policies usually provide coverage for a few months.
Long-Term Disability Insurance: This type of disability insurance provides a longer period of benefit payments should you become disabled due to an illness or injury. Long-term policies can provide coverage for years.
Replacement Ratios: The percentage of your income that will be replaced by a disability policy once benefits begin.
Elimination Period: The length of time between when you become disabled and when you can begin collecting disability benefits.
Occupation Class: Your occupation class is used to calculate your premiums, so it’s important to accurately describe the job duties associated with your occupation.
Many companies are offering pet insurance as an add-on these days, which is a great perk! Here are a few terms to be familiar with before signing up.
Waiting Period: The amount of time after purchasing a pet insurance plan before coverage begins. This can be anywhere from 3 days to 90 days, depending on the provider.
Pre-Existing Condition: Any condition diagnosed or treated within six months prior to getting pet insurance coverage. These conditions are generally excluded from coverage.
Know The Insurance Lingo
It’s important to familiarize yourself with key insurance terms and definitions to make sure your coverage is appropriate for your needs.
Understanding the difference between insurance premiums, coverages, copayments, waiting periods, and pre-existing conditions can help ensure that you have the proper coverage in place for you and your family.